Equity index indicator summary for week of Feb. 8

Jan. 19, 2010 was probably the top of the intermediate-term rally that began in March 2009. Not only did the S&P 500 Index and the Dow Jones Industrial Average declined 9.2% and 8.3% respectively, peak to trough, over the past few weeks, but price weakness has created statistical negativity in a number of our key market indicators.

Weakness has forced prices below defined, trailing 10-week price channels for the first time since the intermediate-term rally began. At the same time intermediate-term momentum is now negative in all of the major indexes including the S&P 500, Dow 30, 20, 15, and the NASDAQ. Only the Russell 2000 Index is fractionally positive. And while we suggested that short-term “oversold” conditions could lead to a bounce following last week’s commentary, two strong up days last week faded like so much smoke in the wind as larger cycle negativity exerted itself.

While we are left with some of the same, leftover short-term “oversold” conditions, the fact is, as we pointed out earlier, that “oversold” in the early stages of a decline is not the same thing as “oversold” in the early part of a bull move. As a consequence, current readings should be taken more as a confirmation of negative momentum than of a buying opportunity.

Nonetheless, it is inevitable that there will be a rebound developing on the short-term cycle at some point. Where the interim bottom will be created before that bounce develops could be somewhere this side of the 200-day moving averages last plotted at 1018 in the S&P 500 and 9480 in the Dow. Following such a low, however, we do not believe that strength will result in new intermediate-term highs.

McCurtain Most Actives Advance/Decline Line (MAAD)

MAAD declined to a new short-term low last Thursday (MAAD daily), coincident with the 268 point drop in the Dow Jones Industrial Average. On that day there were no up issues in the NYSE 20 Most Actives. Adding to the negative surge in the indicator, MAAD moved lower on the intermediate-term cycle (MAAD weekly) and closer still to the bottom reached during the week of March 6, 2009. Selling below that latter level would create an ominous setting for the stock market, given the fact that MAAD peaked back in August with virtually no net improvement since then and despite the fact the broad market moved modestly higher over the next 4 ½ months, albeit only about 12% higher as compared to the 48% MAAD improvement from the March lows to that August peak. Put another way, following the MAAD highs late in the third quarter, Smart Money was hinting at market disenchantment even though they were not yet outright sellers of shares. Currently that attitude has changed and larger players have moved to a net selling stance relative to the market.
While MAAD is currently “oversold” on the short-term cycle, that is not the case on the intermediate-term trend, a suggestion that the most we might expect is a short-term rally within the context of a developing intermediate-term negative. Nothing but new highs in MAAD, a highly unlikely event, would suggest a resumption of the bull move.

Below charts track the daily and weekly MAAD (click on charts to enlarge)

McCurtain Call/Put Dollar Value Flow Line (CPFL)

There was only one up day in CPFL statistics last week (Wednesday) on a Dollar Volume basis. That one positive session was simply not enough to reverse the negative bias of the indicator that fractured its intermediate-term uptrend over two weeks ago. While it’s also true that CPFL (see daily and weekly chart below) relative to prices remains stronger in that the indicator has yet to break below a support point created in early December, whereas prices have fractured a similar level, it is the negative bias of CPFL that is now relevant.
Admittedly CPFL is “oversold” on the short-term cycle, not on the intermediate. Like its MAAD counterpart, the indicator could allow for some price rebounding once a short-term low has been put in place. But we continue to think such strength would not result in new intermediate-term price highs. CPFL would probably return to neutral-plus coincident with a short-term price high before heading lower.

Below charts track the daily and weekly CPFL (click on charts to enlarge)

Conclusion

More losses in the stock market last week further entrenched what we think is a developing intermediate-term downtrend. Not only did major indexes decline to levels not seen since last November, but statistical negativity in key indicators like Momentum and trailing Price Channels underscored the unfavorable prognosis.
Given the fact that near-term “oversold” conditions persist, we cannot preclude a near-term bounce/reflex short-covering rally to eliminate those smaller cycle, downside extremes. We must continue to note, however, that such strength should develop within the context of a developing and potentially negative intermediate-term framework. Prices could see some hesitation and minor strength toward trailing 200-day moving averages (1018—S&P 500, 9480—Dow 30).
In sum, we continue to think that the adoption of a seller’s mentality, net, or on any strength that develops in the sessions ahead, would be the most prudent course to follow. Put another way, the surprises to come could be on the downside.

Below are definitions of the indicators along with links to the original stories. Also, the most recent raw data for both indicators. Robert also describes these indicators in a recent I-Trade show presentation available online.

Raw data of both indicators

MAAD data for past 30 Weeks* CPFL data for past 30 Weeks

Date

NYSE Adv

NYSE Dec

Date

OEX Call $Volume

OEX Put $Volume

7-17-09

16

4

7-17-09

1392618

93906

7-24-09

13

7

7-24-09

723868

307762

7-31-09

15

5

7-31-09

408723

227672

8-7-09

18

2

8-7-09

1004041

164326

8-14-09

10

10

8-14-09

272564

163886

8-21-09

15

5

8-21-09

1393327

120157

8-28-09

13

7

8-28-09

432501

191355

9-4-09

5

15

9-4-09

365834

179305

9-11-09

11

9

9-11-09

359980

126755

9-18-09

13

7

9-18-09

740103

210711

9-25-09

8

12

9-25-09

272801

300788

10-2-09

4

16

10-2-09

203911

461590

10-9-09

16

4

10-9-09

472452

118078

10-16-09

8

12

10-16-09

876199

125762

10-23-09

6

14

10-23-09

574031

238407

10-30-09

4

16

10-30-09

299062

898417

11-6-09

10

10

11-6-09

284004

210925

11-13-09

13

7

11-13-09

347029

147219

11-20-09

11

9

11-20-09

393221

229286

11-27-09

10

10

11-27-09

113184

195078

12-4-09

13

7

12-4-09

380418

272125

12-11-09

9

11

12-11-09

698727

204986

12-18-09

9

11

12-18-09

1879248

275057

12-25-09

14

6

12-25-09

81225

121215

1-1-10

4

16

1-1-10

58023

105653

1-8-10

17

3

1-8-10

196161

90275

1-15-10

5

15

1-15-10

171920

238731

1-22-10

3

17

1-22-10

166423

728001

1-29-10

8

12

1-29-10

230439

706372

2-5-10

7

13

2-5-10

393336

868741

*Note: All data is for week ending on Friday even though ending date may be a holiday.
Unchanged issues in MAAD calculations are not counted.

MAAD data for past 30 days* CPFL data for past 30 days

Date

NYSE Adv

NYSE Dec

Date

OEX Call $Volume

OEX Put $Volume

12-23-09

10

10

12-23-09

22741

71849

12-24-09

14

5

12-24-09

23354

19796

12-25-09

Holiday

12-25-09

Holiday

12-28-09

12

8

12-28-09

38736

27223

12-29-09

6

14

12-29-09

25008

36891

12-30-09

4

15

12-30-09

38511

21322

12-31-09

8

12

12-31-09

23350

40527

1-1-10

Holiday

1-1-10

Holiday

1-4-10

17

3

1-4-10

38165

39249

1-5-10

15

5

1-5-10

41864

20718

1-6-10

12

8

1-6-10

55939

32820

1-7-10

13

7

1-7-10

40339

33414

1-8-10

9

11

1-8-10

55056

31126

1-11-10

11

9

1-11-10

74407

73960

1-12-10

4

16

1-12-10

45919

51588

1-13-10

13

7

1-13-10

71500

56743

1-14-10

10

10

1-14-10

44095

36133

1-15-10

7

13

1-15-10

52195

72640

1-18-20

Holiday

Holiday

1-19-10

12

8

1-19-10

88318

51480

1-20-10

6

14

1-20-10

47829

74153

1-21-10

6

16

1-21-10

41110

141521

1-22-10

4

16

1-22-10

89311

276857

1-25-10

8

12

1-25-10

92904

140582

1-26-10

5

15

1-26-10

92447

152344

1-27-10

11

9

1-27-10

50997

76384

1-28-10

8

12

1-28-10

71376

145871

1-29-10

5

15

1-29-10

90158

163007

2-1-10

19

1

2-1-10

99416

150782

2-2-10

15

5

2-2-10

54523

84015

2-3-10

4

16

2-3-10

123257

79222

2-4-10

0

20

2-4-10

167554

245460

2-5-10

11

9

2-5-10

127615

253841

*Note: Unchanged issues are not counted.

McCurtain Call/Put Dollar Value Flow Line (CPFL): CPFL is a dollar-weighted, options-based, divergence indicator that is plotted against an underlying index or issue to determine the “internal” health of the referenced instrument on a daily or weekly basis. So long as the CPFL remains in synch with the issue, the extant trend, bullish or bearish, should continue. When a divergence develops to the extent the CPFL fails to “confirm” price action (for example: the market index makes a new high, but the CPFL does not), the longevity of the underlying trend in the index is in doubt. CPFL can be plotted against any financial instrument that reports call and put data.

McCurtain Most Actives Advance/Decline Line (MAAD): MAAD is an indicator that reflects the market bias of so-called “smart money” to the extent large investors are committing funds, or withdrawing them, as reflected in daily and weekly Most Actives, exchange-based statistics. So long as MAAD continues to move in tandem with the index it is plotted against (the S&P 500 Index for example), the extant market trend should remain intact. But if, for example, MAAD begins to falter as the index continues higher, it should be presumed that astute investors have begun to sell into strength.

Robert McCurtain is a technical analyst, market timer and private investor based in New York City. He can be reached at traderbob@nyc.rr.com.

Robert McCurtain’s CPFL and MAAD indicators, both described in past articles and in his recent I-Trade show presentation, have proven prescient and drawn a lot of attention by traders. Robert will provide a weekly update of both indicators and we will post the daily charts on futuresmag.com so check back to see what these important indicators are telling you.